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Claims-made verse occurrence-based terms

This review drills down to the very understanding of claims-made & occurrence-based insurance policies.

The following insurance classes are often claims-made, as opposed to occurrence-based insurance policies.

  • Tax Audit Insurance
  • Professional Indemnity
  • Directors & Officers Liability
  • Employment Practices Liability
  • Management Liability
  • The crucial impact & indeed importance of the variance in the cover provided (under claims-made vs occurrence-based) will be seen below.

Claims-Made Liability

The above classes of insurance are most often written on a claims-made basis. This means the insured is covered for claims made against them during the current period of insurance, irrespective of the date when the incident happened; (subject to the retroactive date – if not unlimited).

E.g. ABC Plumbing Pty Ltd receives a tax audit claim from the ATO on 1 July 2021. The matter relates to a payroll tax event from early 2017. It is the policy that is in place when the claim is made that will respond i.e. 1 July 2021, as opposed to the policy that was in place at the time of the occurrence (early 2017).

There are two important criteria to observe with this:

  1. By reason of the nature of claims-made policies, the insured is required to report or notify the insurer of any claim or known circumstance which may lead to a claim, within the current period of insurance;
  2. It is the current insurer that will respond to a claim made against the insured, & not the insurer on risk at time of original incident.

Occurrence-Based Liability

Householders Insurance is generally always written on an occurrence basis. This means the insured is covered for damage caused by an occurrence happening during the current period of insurance.

(Occurrence means an event or series of events, including continuous or repeated exposure to substantially the same general conditions, which results in personal injury or property damage neither expected nor intended by the insured).

With occurrence-based policies, it is the original insurer on risk at the time when the incident happened, that will ultimately respond to a claim; irrespective of when the claim is actually lodged; which may be many years of elapsed time since the date of the original incident.

If a claim under an occurrence-based policy is lodged today, the current insurer will refer the insured back to their original insurer (who was on risk when the incident occurred).

If you would like more information please contact Adi Snir

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